Oil production declines and weak non-commodity exports to the US, where we have recently lowered our real GDP growth forecast, will see economic growth in Canada slow.
Concerns over economic growth and jobs could hurt the Liberal's re-election prospects in 2019, as emphasis on social and environmental policies could be seen to undermine efforts to support provincial economies.
Canada's central bank will begin gradual monetary policy normalisation in 2017, as economic activity starts to recover.
Recovering oil prices will support Canadian dollar appreciation against the US dollar over the remainder of 2016 and in 2017.
Key Forecast Changes
We have lowered our real GDP growth forecasts for Canada from 1.4% and 2.0% to 1.0% and 1.5% in 2016 and 2017 respectively.
We have lowered our end-year consumer price inflation forecasts from 2.0% and 2.2% to 1.3% and 1.8% in 2016 and 2017 respectively.
Continued weakness in US manufacturing activity overshadows the scope for Canada's non-extractive sector economy to recover, leaving it highly vulnerable to commodity price fluctuations and credit-fuelled private consumption.
Despite government efforts to cool down the housing market, weaker growth and tightening credit conditions could burst the housing bubble in 2017, triggering a period of painful private sector deleveraging.
|e/f=BMI estimates/forecasts. Source: National Sources/BMI|
|Real GDP growth, % y-o-y||2.5||1.1||1.1||1.5|
|Nominal GDP, USDbn||1,761.4||1,530.6||1,549.9||1,629.3|
|Consumer price inflation, % y-o-y, eop||1.5||1.6||2.0||2.2|
|Exchange rate CAD/USD, eop||1.16||1.38||1.29||1.28|
|Budget balance, % of GDP||0.1||-0.2||-1.4||-1.4|
|Current account balance, % of GDP||-2.3||-3.4||-3.0||-2.6|
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